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US Fed action seemingly widens rate for T-bonds

(Credit: Mike Coppola/Getty Images) The national treasurer had announced that he had tracked undersubscription. It is due to the expected risks on the rate hike in the U.S.US Fed action seemingly widens rate for  T-bonds
October 12
8:19 AM 2016

On Tuesday, the Bureau of Treasury (BTr) was unsuccessful in producing interest enough for its seven year treasury- bond sale and sold lower than half of the intended amount of P25 billion. As the market had proven restive over the climate of the U.S. Federal Reserve System,  it adjusted interest rates in December, as some have anticipated demand of P25 billion as the market.

 The Btr has sold P11.7772 billion as lackluster interest which only totaled P22.082 billion or a significant plunge that is more than an expected demand of at least $25 billion.

Confronting with the risk of the demand more than P22 billion short of his target, the committee on auction only partly awarded bids which only totaled to P11.772 and neglected P10.310 billion.

Roberto B. Tan, the National treasurer, had tracked the undersubscription to so-called risks related to the expected rate hike the US which was soon to implement in December.

There is a heightened uncertainty which is apparent on the future direction of the US interest rates specifically. A probability of an increase or positive US Fed action by December of around 66 percent to 70 percent is also obvious according to Mr. Tan.

As a result of the uncertainty on prospective US Fed action, investors from the local and the government securities eligible dealers (GSED) heightened the rates of their bids.

Of course with the risks of uncertainty, a lot of investors do not how to price. Thus, they just rather in the meantime step aside and that is probably the consequence of the decline of the volume which is below of what had been offered, the national treasurer elaborated.

An average of 3.605 percent was sold by the seven-year T-bonds. The auction committee continued with the award to maintain a yield curve that leans on the positive side, despite the low amount of tenders. Moreover, the treasurer said that they will just try to maintain a positive yield curve. He further stated that they do not want to contradict the market trend. But they are aware of their yield. Thus, they are just following it.

The bond auction committee had discerned to initially award the reissued seven-year T-bonds to align with the other liquid benchmarks, according to the BTr statement which was issued separately.

It has accepted bids ranging from 3.5 percent to 3.650 percent. It fetched an average rate of 3.605 percent which was higher than the original coupon of 3.5 percent in April. The weighted average rate of 3.186 percent was on August upon its last reissuance.

Total outstanding T-bonds currently stand at P86.77 billion.

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